312 U.S.

212
61 S.Ct. 475
85 L.Ed. 783

HIGGINS
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 253.
Argued Jan. 1013, 1941.
Decided Feb. 3, 1941.
Rehearing Denied Mar. 3, 1941.

See 312 U.S. 714, 61 S.Ct. 728, 85 L.Ed. -.

Mr. Selden Bacon, of New York City, for petitioner.
Mr. Arnold Raum, of Washington, D.C., for respondent.
Mr. Justice REED delivered the opinion of the Court.

Petitioner, the taxpayer, with extensive investments in real estate, bonds and
stocks, devoted a considerable portion of his time to the oversight of his
interests and hired others to assist him in offices rented for that purpose. For the
tax years in question, 1932 and 1933, he claimed the salaries and expenses
incident to looking after his properties were deductible under Section 23(a) of
the Revenue Act of 1932.1 The Commissioner refused the deductions. The
applicable phrases are: 'In computing net income there shall be allowed as
deductions: (a) Expenses. * * * All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or business * * *.'
There is no dispute over whether the claimed deductions are ordinary and
necessary expenses. As the Commissioner also conceded before the Board of
Tax Appeals that the real estate activities of the petitioner in renting buildings2
constituted a business, the Board allowed such portions of the claimed
deductions as were fairly allocable to the handling of the real estate. The same
offices and staffs handled both real estate and security matters. After this
adjustment there remained for the year 1932 over twenty and for the year 1933
over sixteen thousand dollars expended for managing the stocks and bonds.

Petitioner's financial affairs were conducted through his New York office
pursuant to his personal detailed instructions. His residence was in Paris,
France, where he had a second office. By cable, telephone and mail, petitioner
kept a watchful eye over his securities. While he sought permanent investments,
changes, redemptions, maturities and accumulations caused limited shiftings in
his portfolio. These were made under his own orders. The offices kept records,
received securities, interest and dividend checks, made deposits, forwarded
weekly and annual reports and undertook generally the care of the investments
as instructed by the owner. Purchases were made by a financial institution.
Petitioner did not participate directly or indirectly in the management of the
corporations in which he held stock or bonds. The method of handling his
affairs under examination had been employed by petitioner for more than thirty
years. No objection to the deductions had previously been made by the
Government.

The Board of Tax Appeals3 held that these activities did not constitute carrying
on a business and that the expenses were capable of apportionment between the
real estate and the investments. The Circuit Court of Appeals affirmed,4 and we
granted certiorari, 311 U.S. 626, 61 S.Ct. 34, 85 L.Ed. -, because of conflict.5

Petitioner urges that the 'elements of continuity, constant repetition, regularity

and extent' differentiate his activities from the occasional like actions of the
small investor. His activity is and the occasional action is not 'carrying on
business.' On the other hand, the respondent urges that 'mere personal
investment activities never constitute carrying on a trade or business, no matter
how much of one's time or of one's employees' time they may occupy.'

Since the first income tax act, the provisions authorizing business deductions
have varied only slightly. The Revenue Act of 19136 allowed as a deduction
'the necessary expenses actually paid in carrying on any business.' By 1918 the
present form was fixed and has so continued.7 No regulation has ever been
promulgated which interprets the meaning of 'carrying on a business,' nor any
rulings approved by the Secretary of the Treasury, i.e., Treasury Decisions.8
Certain rulings of less dignity, favorable to petitioner,9 appeared in individual
cases but they are not determinative. 10

Even acquiescence11 in some Board rulings after defeat does not amount to
settled administrative practice.12 Unless the administratives practice is long
continued and substantially uniform in the Bureau and without challenge by the
Government in the Board and courts, it should not be assumed, from rulings of
this class, that Congressional reenactment of the language which they construed
was an adoption of their interpretation.

While the Commissioner has combated views similar to petitioner's in the

courts, sometimes successfully13 and sometimes unsuccessfully,14 the petitioner
urges that the Bureau accepted for years the doctrine that the management of
one's own securities might be a business where there was sufficient extent,
continuity, variety and regularity. We fail to find such a fixed administrative
construction in the examples cited. It is true that the decisions are frequently
put on the ground that the taxpayer's activities were sporadic but it does not
follow that had those activities been continuous the Commissioner would not
have used the argument advanced here, i.e., that no amount of personal
investment management would turn those activities into a business. Evidently
such was the Government's contention in the Kales case,15 where the things the
taxpayer did met petitioner's tests, and in Foss v. Commissioner16 and
Washburn v. Commissioner17 where the opinions turned on the extent of the
taxpayer's participation in the management of the corporations in which
investments were held.18

Petitioner relies strongly on the definition of business in Flint v. Stone Tracy

Company:19 "Business' is a very comprehensive term and embraces everything
about which a person can be employed.' This definition was given in
considering whether certain corporations came under the Corporation Tax law
which levies a tax on corporations engaged in business. The immediate issue
was whether corporations engaged principally in the 'holding and management
of real estate'20 were subject to the act. A definition given for such an issue is
not controlling in this dissimilar inquiry.21

To determine whether the activities of a taxpayer are 'carrying on a business'

requires an examination of the facts in each case. As the Circuit Court of
Appeals observed, all expenses of every business transaction are not deductible.
Only those are deductible which relate to carrying on a business. The Bureau of
Internal Revenue has this duty of determining what is carrying on a business,
subject to reexamination of the facts by the Board of Tax Appeals22 and
ultimately to review on the law by the courts on which jurisdiction is
conferred.23 The Commissioner and the Board appraised the evidence here as
insufficient to establish petitioner's activities as those of carrying on a business.
The petitioner merely kept records and collected interest and dividends from his
securities, through managerial attention for his investments. No matter how
large the estate or how continuous or extended the work required may be, such
facts are not sufficient as a matter of law to permit the courts to reverse the
decision of the Board. Its conclusion is adequately supported by this record, and
rests upon a conception of carrying on business similar to that expressed by this
Court for an antecedent section.24

10

The petitioner makes the point that his activities in managing his estate, both
realty and personalty, were a unified business. Since it was admittedly a
business in so far as the realty is concerned, he urges, there is no statutory
authority to sever expenses allocable to the securities. But we see no reason
why expenses not attributable, as we have just held these are not, to carrying on
business cannot be apportioned. It is not unusual to allocate expenses paid for
services partly personal and partly business. 25

11

Affirmed.

47 Stat. 169, c. 209, 26 U.S.C.A.Int.Rev.Code, 23(a).

Cf. Pinchot v. Commissioner, 2 Cir., 113 F.2d 718.

39 B.T.A. 1005.

2 Cir., 111 F.2d 795.

Kales v. Commissioner, 6 Cir., 101 F.2d 35, 122 A.L.R. 211; DuPont v.
Deputy, 3 Cir., 103 F.2d 257.

38 Stat. 167, Section II B.

40 Stat. 1066, Sec. 214(a)(1).

Cf. Helvering v. New York Trust Co., 292 U.S. 455, 467, 468, 54 S.Ct. 806,
809, 810, 78 L.Ed. 1361.

O.D. 537, 2 C.B. 175 (1920); O.D. 877, 4 C.B. 123 (1921); I.T. 2751, XIII-1
C.B. 43 (1934). See also 1934 C.C.H. Federal Tax Service, Vol. 3, 6035, p.
8027.

10

Biddle v. Commissioner, 302 U.S. 573, 582, 58 S.Ct. 379, 383, 82 L.Ed. 431.
Cf. Estate of Sanford v. Commissioner, 308 U.S. 39, 52, 60 S.Ct. 51, 59, 84
L.Ed. 20. But see Helvering v. Bliss, 293 U.S. 144, 151, 55 S.Ct. 17, 20, 79
L.Ed. 246, 95 A.L.R. 207, and McFeely v. Commissioner, 296 U.S. 102, 108,
56 S.Ct. 54, 57, 80 L.Ed. 83, 101 A.L.R. 304.

11

Kissel v. Commissioner, 15 B.T.A. 1270, acquiesced in VIII-2 C.B. 28 (1929);

Croker v. Commissioner, 27 B.T.A. 588, acquiesced in XII-1 C.B. 4 (1933).

12

Higgins v. Smith, 308 U.S. 473, 478, 479, 60 S.Ct. 355, 358, 84 L.Ed. 406.

13

Bedell v. Commissioner, 2 Cir., 30 F.2d 622, 624; Monell v. Helvering, 2 Cir.,

70 F.2d 631; Kane v. Commissioner, 2 Cir., 100 F.2d 382.

14

Kales v. Commissioner, 6 Cir., 101 F.2d 35, 122 A.L.R. 211; DePont v.
Deputy, 3 Cir., 103 F.2d 257, 259, reversed on other grounds, 308 U.S. 488, 60
S.Ct. 363, 84 L.Ed. 416.

15

Kales v. Commissioner, 34 B.T.A. 1046; Id., 6 Cir., 101 F.2d 35, 122 A.L.R.
211.

16

1 Cir., 75 F.2d 326.

17

8 Cir., 51 F.2d 949, 953.

18

Cf. Roebling v. Commissioner, 37 B.T.A. 82; Heilbroner v. Commissioner, 34

B.T.A. 1200.

19

220 U.S. 107, 171, 31 S.Ct. 342, 357, 55 L.Ed. 389, Ann.Cas.1912B, 1312.

20

Id., 220 U.S. page 169, 31 S.Ct. page 356, 55 L.Ed. 389, Ann.Cas.1912B, 1312.

21

Cohens v. Virginia, 6 Wheat. 264, 399, 5 L.Ed. 257; Puerto Rico v. Shell Co.,
302 U.S. 253, 269, 58 S.Ct. 167, 174, 82 L.Ed. 235.

22

Revenue Act of 1932, 47 Stat. 169, 272, 26 U.S.C.A.Int.Rev.Acts, page 558;

Internal Revenue Code, 272, 26 U.S.C.A.Int.Rev.Code, 272.

23

Internal Revenue Code, 1141, 26 U.S.C.A.Int.Rev.Code, 1141.

24

Van Wart v. Commissioner, 295 U.S. 112, 115, 55 S.Ct. 660, 79 L.Ed. 1336.

25

3 Paul & Mertens, Law of Federal Income Taxation 23.65; cf. National
Outdoor Advertising Bureau v. Helvering, 2 Cir., 89 F.2d 878, 881.